Ukrainian Railway warns against selling its Prominvestbank debt

Ukrainian Railway (RAILUA) issued a press release on
Feb. 19 commenting on the alleged intention of Prominvestbank, one of its creditors,
to sell the company’s debt to third parties. “We strongly recommend potential
interested parties to refrain from such a transaction,” the company wrote,
adding that it’s currently suing the bank in different courts on the status and
size of the debt. Ukrainian Railway serviced its debt by September 2017 and
“consistently made good faith efforts to settle problems and disputes around
this debt,” it wrote. However, since that time, the bank’s “aggressive actions”
led to a series of court lawsuits regarding this debt.

The company also highlighted that Prominvestbank, a
subsidiary of the Russian state-controlled financial institution VEB, is under
Ukrainian sanctions (introduced in March 2017), and there is a valid court
ruling that freezes the bank’s assets (most likely, this refers to a September 2018 freezing order
on behalf of former Privatbank stakeholders).

Ukrainian Railway’s total debt to Prominvestbank was
USD 153 mln (UAH 4.3 bln) as of end-3Q18, according to its 2019 draft business
plan. Recall, in December 2017, the holders of RAILUA Eurobonds voted to allow
the company to avoid a cross-default event for an indefinite time for its USD
153 mln in local debt, which we identify as its debt to Prominvestbank.

Alexander Paraschiy: The bank’s
alleged intention to sell Ukrainian Railway’s debt suggests that the borrower
and the lender are very far from reaching a compromise. In turn, this means
that Ukrainian Railway acted correctly in securing a waiver on the
cross-default on this debt in 2017.

At the same time, the presence of unresolved debt
issues may serve as a restraining factor for current RAILUA bonds to
appreciate, which in turn may affect the pricing of a new bond that the company
is considering to issue.